While iPhone sales were down barely, they were higher than expected.
Apple (NASDAQ:AAPL) stock was rising Friday morning as investors were buying stock within the iPhone maker after it posted solid earnings that topped estimates.
The numbers were decent, as revenue rose 5% year-over-year to $85.8 billion — a record for the fiscal third quarter ended June 30. It was also higher than the $84.4 billion in revenue that analysts had projected.
Net income jumped 8% to $21.5 billion, or $1.40 per share, which was also above estimates of $1.35 per share.
Nevertheless, contained in the numbers, there have been some concerns, in addition to some surprises. The query for investors is: Is Apple stock a buy after Q3 earnings?
iPhone sales down
One in every of the first takeaways from Apple’s fiscal Q3 earnings is that iPhone sales were down year-over-year. The iPhone is by far the most important revenue driver for Apple, generating $39.3 billion in revenue within the quarter. That beat estimates nevertheless it was down 1% from the identical quarter a 12 months ago.
iPhone sales have been lagging, down about 10% over the past 12 months. The June quarter numbers were about in step with what the corporate expected, because it called for low-single-digit revenue gains within the quarter.
Lower sales could also be attributed to several aspects, starting from the economy to the price to the shortage of anything latest to warrant an upgrade.
But at Apple’s Worldwide Developers Conference in June, Apple CEO Tim Cook outlined the entire latest features in the brand new iOS 18 operating system and the iPhone 16, each of which is able to come out this fall.
“In the course of the quarter, we were excited to announce incredible updates to our software platforms at our Worldwide Developers Conference, including Apple Intelligence, a breakthrough personal intelligence system that puts powerful, private generative AI models on the core of iPhone, iPad, and Mac,” Cook said of the upgrades.
China sales drop, Services revenue up
One other factor causing iPhone sales to drop is the decrease in sales in China. Within the third quarter, sales in China were down 7% year-over-year to $14.7 billion. As that is Apple’s third biggest market after the U.S. and Europe, the downward trend is a priority.
The $14.7 billion in sales in China were below estimates of $15.2 billion, but Cook, on the earnings call, said recent price discounts within the region have been effective in boosting iPhone 15 sales.
One in every of the intense spots for Apple has been its growth in Services revenue, which incorporates revenue from Apple TV, iTunes, apps, and other subscriptions.
Within the third quarter, Apple did a record $24.2 billion in Services revenue, up 14% year-over-year. This has been a growing segment for Apple, accounting for about 28% of total sales. That’s up from 25% in the identical quarter a 12 months ago and 23% two years ago this quarter. The Q3 Services revenue results were higher than analysts had predicted.
Is Apple stock a buy?
Apple doesn’t typically provide formal quantitative guidance, nevertheless it does sometimes give estimates on earnings calls with analysts. On the Q3 earnings call, officials said they expect similar revenue growth in Q3, each overall and inside Services.
Nevertheless, toward the top of the quarter in mid-September, the brand new iPhone 16, with the Apple Intelligence AI upgrades, amongst others, will roll out. Investors shall be watching this closely to see if that is the product that may move the needle again for iPhone sales.
Apple stock is up about 16% year-to-date, including a 2% gain on Friday. Analysts gave Apple stock mostly moderate price goal increases post-earnings, based largely on the earnings beat and maybe a bump after the brand new iPhone and operating system launch.
Currently it has a median price goal of $222 per share, which is definitely down from its current $223 per share. Nevertheless, I believe that median goal will tick up barely based on this week’s upgrades.
The valuation has remained fairly regular, as Apple stock is trading at 34 times earnings, up barely from 31 at the beginning of the 12 months. I believe the valuation continues to be a bit too high. And with there likely being no catalyst until September, and a volatile market that appears to be in correction mode for overpriced big tech stocks, it is likely to be sensible to observe Apple stock until closer to the iPhone launch, searching for a greater entry point to purchase.